A comparison of laws in selected EU jurisdictions relating to post-contractual, non-competition agreements between employers and employees

Countries across Europe have differing requirements relating to the validity of non-competition agreements between employers and employees following the termination of an employment contract. We provide a brief comparative analysis of the requirements in Italy, Germany, France, Poland, the Netherlands and the UK. Please get in touch with your local Norton Rose Fulbright contact or any of the contributors to this publication to learn more about this topic.

Form

• Written form is a mandatory requirement.
• The covenant is normally part of the employment contract, but it can also be part of a separate agreement that can be executed during the course of the employment.
• The potential invalidity of the covenant does not extend to the employment contract.

Restricted activity

• Indicating which is the content of the restricted activity is a mandatory requirement.
• The restriction has to be confined to a specific activity (e.g. industry sector) carried out by the employee during the employment contract.
• In order to be valid, the covenant does not have to prevent the employee from pursuing any other work opportunities consistent with his professional skills.

Geographical limitation

• Indicating a specific geographical limitation is a mandatory requirement.
• The limitation cannot be too broad (e.g. entire planet) since the potential future activity of the employee cannot be totally inhibited.

Length of the prohibition

• Indicating a specific length of the prohibition is a mandatory requirement.
• The prohibition cannot be longer than:
  • 5 years for executive-level employees and
  • 3 years for other employees
• In case a longer length is agreed upon, it will be automatically reduced to the limits provided by law.

Compensation

• Providing a specific compensation for the employee is a mandatory requirement.
• Case law states that compensation has to be fair and adequate in relation to the scope, duration and geographical limitation.
• In order to be considered adequate, the compensation must be determined or determinable and cannot be linked to variable elements.
• An unfair and/or inadequate compensation may result in the non-compete covenant being deemed null and void.

Right of withdrawal

• Case Law does not allow the unilateral withdrawal by the employer from the non-competition covenant, even before the employment termination.
• The non-compete covenant can only be terminated by means of an agreement between the employer and the employee.

Form

• Written form is a mandatory requirement. In addition, the post-contractual non-compete clause is only valid if the employee has been provided with a copy of the contract or the covenant, signed in the original by the employer.
• The covenant is normally part of the employment contract (or of an amendment thereof or of a termination agreement).
• The potential invalidity of the covenant does not extend to the employment contract.

Restricted activity

• Indicating which is the content of the restricted activity is a mandatory requirement.
• The covenant must be reasonable and can be included only to protect the legitimate interests of the company.
• In general the scope of its content shall be restricted to the company’s area of operation (scope of business and/or employees’ area of work).

Geographical limitation

• Indicating a specific geographical limitation is a mandatory requirement.
• The covenant must be reasonable and can be included only to protect the legitimate interests of the company.
• In general the geographical area shall be restricted to the company’s local area of operation.

Length of the prohibition

• Indicating a specific length of the prohibition is a mandatory requirement.
• The maximum period is two years after the termination of the employment relationship.

Compensation

• A post contractual non-compete covenant is only valid and enforceable if a compensation payment is promised already at the point in time when the parties agree on the covenant; whereas such promised compensation must be at least 50% of the most recent contractual remuneration received by the employee for each year of the prohibition.
• “Contractual remuneration” in this regard includes all fixed and variable payments and also any benefits in kind (e.g. a company car).

Right of withdrawal

• Prior to the termination of the employment relationship, the employer may waive the prohibition of competition by a written statement (i.e. the waiver must be originally signed; email, scan, etc. are not sufficient) with the effect that the employer will be free of the obligation to pay the compensation beginning one year after the date of the statement.
• Please note that in this case the employee may compete with the employer after the statement as soon as the employment terminates (even if the period of one year after the declaration of the waiver has not been expired and the employer is, therefore, obliged to pay the compensation until the expiry of such period).

Form

• Written form is a mandatory requirement.
• The covenant is normally part of the employment contract (or of an amendment thereof).
• The potential invalidity of the covenant does not extend to the employment contract.

Restricted activity

• Indicating which is the content of the restricted activity is a mandatory requirement.
• The non-compete clause can be included only to protect the legitimate interests of the company.
• The non-compete clause has to be confined to a specific activity.
• The potential future activity of the employee cannot be totally inhibited (taking into account the limitations in terms of restricted activity, geographical scope and length of prohibition).

Geographical limitation

• Indicating a specific geographical limitation is a mandatory requirement.
• The limitation cannot be too broad taking into consideration of the company’s activity and the specificity of the duties of the employee.
• The potential future activity of the employee cannot be totally inhibited (taking into account the limitations in terms of restricted activity, geographical scope and length of prohibition).

Length of the prohibition

• Indicating a specific length of the prohibition is a mandatory requirement.
• The prohibition cannot be too long. The potential future activity of the employee cannot be totally inhibited (taking into account the limitations in terms of restricted activity, geographical scope and length of prohibition).
• Some sector-wide collective bargaining agreements provide maximum length.

Compensation

• Providing a specific compensation for the employee (which should not be derisory) is a mandatory requirement.
• Some sector-wide collective bargaining agreements provide for minimum compensation which is usually calculated by a percentage of the average base salary.

Right of withdrawal

• The employer is allowed to withdraw unilaterally the non-compete clause, only if this possibility is provided by the non-compete clause or by the applicable sector-wide collective bargaining agreement. Such withdrawal shall generally take place in specific time frames, and on the last day worked by the employee at the latest.

Form

• Written form is a mandatory requirement.
• Generally, the non-compete covenant constitutes a separate agreement, but it may be included in an employment contract.
• The potential invalidity of the covenant does not extend to the employment contract.

Restricted activity

• The scope of the restricted activity should be defined by the parties in order to ensure that the non-compete covenant is effective. Such requirement results from the case law.
• Such scope should relate to the business activities that the employer actually conducts or is planning to conduct.
• The scope of the non-compete covenant should not restrict the employee’s right to pursue activities that could not be regarded as being in competition with the business of the employer.

Geographical limitation

• Indicating a specific geographical limitation is not a mandatory requirement.
• The parties are free to define the geographical limitation of the non-compete covenant.
• It is, however, a general understanding that the area so defined should not exceed the area of the   employer’s present or planned activities.
• If defined too broadly, the geographical limitation of the non-compete covenant may be partially ineffective if the employer has no connection with the area so defined, or does not intend to pursue business activities there.

Length of the prohibition

• Generally, there are no limits on the length of the prohibition.
• Legal scholars express a view that an excessively long period of prohibition may be deemed void by the court in case of a dispute.

Compensation

• The employee is entitled to compensation equal to at least 25 % of his/her salary, which is a mandatory minimum.

Right of withdrawal

• Pursuant to the case law, the parties may agree in a non-compete covenant that until a certain date (usually, the end of employment relationship) the employer will have a right to rescind the non-compete covenant.
• The case law also allows the parties to agree on the catalogue of circumstances on the occurrence of which the employer will have a right to terminate the non-compete covenant following termination of employment.

Form

• Mandatory requirements: (i) in writing (ii) with a person of age (i.e. ≥ 18).
• A fixed term employment contract may only include a non-competition clause in exceptional cases and it should provide for a motivation – in the clause itself –why this is necessary to protect substantial business interests. In order for the clause to be upheld in court the employer must prove that the substantial business interests existed both at the start and the end of the fixed term employment contract.
• The covenant is normally part of the employment contract, but it can also be part of a separate agreement that can be executed during the course of the employment.

Restricted activity

• Indicating the content of the restricted activity is a mandatory requirement.
• An employee can be prohibited from (directly or indirectly) performing or engaging in activities similar to those of the employer. A non-competition clause may also refer to customers or suppliers.
• The court may mitigate the scope of prohibited activities.

Geographical limitation

• Indicating a specific geographical limitation is not a mandatory requirement.
• The court may mitigate the geographical scope.

Length of the prohibition

• The law does not provide for a maximum duration. However, it is generally accepted that the maximum, reasonable duration for a non-competition clause is one year after termination of an employment contract. In exceptional cases a longer term may be accepted by the court.
• The court may mitigate the duration of the covenant.

Compensation

• The law requires no compensation to be paid to the employee but, the court can award compensation for the period the covenant is maintained if the opportunities for the employee to find other work are too restricted by the covenant.

Right of withdrawal

• The employer can unilaterally waive the covenant.
• The court can annul or mitigate the covenant.

Form

• No mandatory formalities.
• The covenant should be expressly contained in the employment contract but it can also be part of a separate document. In each case, the employee should sign the documents evidencing agreement to become bound by the restrictions.

Restricted activity

• Non-mandatory but chances of enforceability will be increased if the covenant specifically sets out the nature of the non-compete restriction in as narrow terms as possible.
• For example, a well drafted non-compete clause would ideally define the employer’s competitors (either by naming them or by reference to the nature of the employer’s own business) and by specifically setting out the types of activities the employee is prohibited from carrying out for those competitors.

Geographical limitation

• Non-mandatory but care should be taken as to whether it is really appropriate to include a geographic restriction.
• For many employers, where employees carry out their work is largely irrelevant as the reality may be that business can be carried out anywhere.
• Consideration should therefore be given as to whether the employee can be restrained in some other way without reference to geographic areas e.g. by referring to a particular activity which is prohibited.
• Overall, however, geographic restrictions, although less common, can sometimes increase the likelihood of enforceability since they restrict the ambit of the covenant. A court is likely to consider whether there is a link between the interest to be protected and the specific geographic area, the size, nature and density of the population and where the employee’s activities take place.

Length of the prohibition

• Non-mandatory but care should be taken when drafting the duration of a covenant as covenants should be drafted of limited duration for enforceability.
• As a general rule, the shorter the duration of the restriction the more likely it will be enforceable.
• Non-compete restrictions of between six and 12 months are relatively standard depending on the seniority of the individual, which is often a key factor when a court is called upon to determine enforceability. e.g. a 12 month non-compete restriction for a junior employee is unlikely to be enforceable.
• It is unlikely that a non-compete restriction with a duration of longer than 12 months would be enforceable.

Compensation

• No need for specific consideration when entering into covenants under the terms of an employment contract – normal salary / benefits will suffice.
• Care should be taken if entering into covenants later in the employment relationship as there could be issues as to whether consideration has been provided. Normal practice if there is doubt as to enforceability is to ensure the agreement setting out the covenants is executed as a deed.

Right of withdrawal

• Employer can agree to waive restrictive covenants e.g. under the terms of a settlement agreement.
• An employee will no longer be bound by a restrictive covenant if the employer is in repudiatory breach of the employment contract (e.g. breaches the employee’s notice period).